Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/146237
Authors: 
Jenkins, Jesse D.
Karplus, Valerie J.
Year of Publication: 
2016
Series/Report no.: 
WIDER Working Paper 2016/44
Abstract: 
The economic prescription for climate change is clear: price carbon dioxide (CO2) and other greenhouse gas emissions to internalize climate damages. In practice, a variety of political economy constraints prevent the introduction of a carbon price equal to the full social cost of emissions. This paper develops insights about the design of climate policy in the face of binding political constraints, formulated here as limits on the CO2 price itself, on increases in energy prices, and on energy consumer and producer surplus loss. We employ a stylized model of the energy sector to develop intuition about the welfare-maximizing combination of CO2 price, subsidy for clean energy production, and lump-sum transfers to energy consumers or producers under each constraint. We find that the strategic use of subsidies or transfers can compensate for or relieve political constraints and significantly improve the efficiency and environmental efficacy of carbon pricing policies.
Subjects: 
political economy
carbon pricing
environmental economics
public economics
climate change
instrument choice
carbon tax
emissions trading
JEL: 
H23
Q48
Q54
Q58
ISBN: 
978-92-9256-087-4
Document Type: 
Working Paper

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